Entrepreneurship and Small Business

Start-up, growth and maturity, third edition

by Paul Burns

Growth audit of an existing business

Select a local small firm that you are familiar with and, using the checklists on the following pages, evaluate its potential for growth:
  • Using Small Business Audit Checklist 1 as a guide, evaluate the personal qualities of the owner-manager and their ability to handle growth and take the firm forward.
  • Using Small Business Audit Checklist 2 as a guide, evaluate the management team and their ability to handle growth and take the firm forward.
  • Using Small Business Audit Checklist 3 as a guide, evaluate the product-market offerings of the firm and the opportunities for growth. Use the checklist for each product-market offering. Represent the product-market portfolio in a Boston matrix.
  • Using Small Business Audit Checklist 4 as a guide, evaluate the competitive environment and competitors facing the firm and evaluate how they might develop sustainable competitive advantage.
  • Using Small Business Audit Checklist 5 as a guide, undertake a financial analysis of the firm and draw up your conclusions about how it is performing. If you are able to obtain projected or budgeted financial statements, repeat the analysis.
  • Analyse the results from steps 1 to 5 and summarise in the form of a SWOT analysis.
  • If the firm has projected or budgeted sales for next year, break them down into the four categories of the Product/Market Matrix (below) and critically analyse how the firm proposes to achieve this increase.

    List the ways the company intends to achieve greater market penetration.
    a) Detail why the company is going into new markets and how it is going to do so.
    b) Give details of any new product(s) it intends to sell and why existing customers are expected to buy.
    c) Give details of and the rationale for any diversification. Explain how it will go about diversifying.
    d) Give details of and the rationale for any mergers and acquisitions. e) Explain how it will go about making the acquisition or merger.

% sales from:

% sales from:

Existing products/customers:

Product development:

Market development:

Diversification:


In the light of the SWOT Analysis, and after discussion with management, critically evaluate the risks associated with these four strategies and the safeguards put in place to provide early warning signs and deal with them. If the organisation has a number of different product/service offerings, repeat the exercise for each one, bearing in mind where it lies in its product life-cycle and the generic marketing strategy being followed. Evaluate its overall portfolio strategy.

Write up your findings in the form of a report

Small Business Audit Checklist 1

Personal qualities of the owner-manager
  • Why is the owner-manager in business?
  • - are they push or pull factors?
  • Is the owner-manager entrepreneurial?
  • - are they opportunistic, innovative, self-confident and self-motivated, proactive with vision and flair and a willingness to take risks?
  • Are they willing to make, and emotionally strong enough to endure, sacrifices and personal hardship for the sake of the business?
  • What are the entrepreneurs long term objectives?
  • - is it capital gain, regular income, need for achievement, contribution to society, provide employment, produce something that is needed, build something that will outlive them, achieve status, have fun?
  • Does the entrepreneur really want the firm to grow?
  • Does the entrepreneur have the ability to change the way they manage the firm as it grows?
  • - will they be able to delegate but control and co-ordinate?
  • Does the entrepreneur have the ability to become a leader?
  • - do they have vision and ideas, have the ability to undertake long-term strategic planning, communicate effectively, have the potential to create the right culture in the firm and will they be able to monitor and control performance effectively?
  • What style of leadership will they adopt?
  • - is it appropriate for the group they manage, the tasks they undertake and the situation they are in?
  • Are they able to cope with crises effectively?
  • Can they build a management team?
  • Can they build an effective board of directors?

Small Business Audit Checklist 2

The management team
  • Is there a management team in place?
  • Does it have an adequate mix of outside experience?
  • Do they have the right skills mix?
  • Is there a proper organisation structure?
  • Is it appropriate for the degree of task complexity?
  • Are there any gaps in the structure?
  • Is authority delegated to the management team?
  • Are there proper controls in place to monitor their performance?
  • Is there an appropriate culture in place?
  • - influenced by appropriate organisational and cognitive processes and behaviours?
  • Are they a cohesive team?

Do they have the right mix of Belbin team roles?
  • Are there any gaps in the team profile?
  • How does this show itself in the way they operate?
  • Do the team handle conflict in an effective manner?
  • Is the management team cohesive?
  • Are the management team motivated to succeed?

Are they personally motivated, are there appropriate incentives in place?
  • Is there a concern for staff within the firm?
  • Is staff turnover generally low?
  • Is the level of absenteeism, for illness or accident, average for the industry?
  • Do staff see themselves as part of the firm, with adequate remuneration and career paths?
  • Are there skill gaps in the firm?
  • Do staff generally receive adequate training?
  • Do staff understand the vision or mission of the firm and do they ‘buy-into’ it?
  • Are management and staff motivated to succeed?

Small Business Audit Checklist 3

The product market offering
  • Can the firm identify the target market segments they are selling to?
  • Are customer needs understood?
  • Are the benefits offered by the products/services understood?
  • How loyal are customers?
  • How frequent are customer complaints and are they properly followed up?
  • Does the firm understand where each product-market offering is in its life cycle?
  • Does the position for the firm mirror that of the industry?
  • Is the portfolio of product-market offerings balanced?
  • Are new product-market offerings planned to replace those coming to the end of their life?
  • Does the firm understand the value chain for each of its product-market offerings?
  • Does the firm have any bench-mark information on how it compares or how its product-market offerings compare to those of competitors?
  • Does the firm follow a definite generic marketing strategy for each product-market offering?
  • Can it command leadership in this area?
  • Does the firm understand its core competencies?
  • Does the firm command operational excellence, product leadership or customer intimacy?
  • Does strategy emphasise something that makes the firm as unique as possible and delivers as much value to the customer as possible?
  • Does the strategy reflect the position of each product-market offering in its life cycle?
  • If cost is important for any product-market offering, does the firm understand the economies of scale it faces and can it command cost leadership?
  • If differentiation is important, does the product-market offering have a strong brand?
  • If focus is important, does the firm undertake frequent and thorough market research, and does it has strong customer relations?

Small Business Audit Checklist 4

The competitive environment
  • Does the firm regularly undertake market research?
  • Does the firm regularly monitor trends in the industry or sector?
  • Are there any trends in the market or industry that are likely to particularly affect the firm?
  • How competitive does Porter’s Five Forces analysis show the firm’s industry to be?
  • Relative to this, how well is the firm performing?
  • Does the firm have any views about future trends (SLEPT) that might affect it?
  • Does it have a strategic response to these trends?
  • Does the firm have information on competitors?
  • - size, profitability and operating methods?
  • - bench-mark performance for efficiency, quality etc.?
  • - marketing strategies of competitors?
  • Can the firm identify which competitors are successful and why?
  • Does the firm know of any important changes that competitors will be making in the future?
  • - marketing mix?
  • - new markets or market segments?
  • - new or developed products?
  • What is the basis for the firm’s competitive advantage?
  • How sustainable is this?